In today’s financial climate, the prospect of looking for fundraising for businesses can be quite daunting for a business owner. Applying for a bank loan or financial help from a finance company can involve never-ending paperwork. There are some other options, however, for businesses that need start-up money, expansion financing, or just some financial help with emergency expenses.
Merchant Cash Advance
One method of fundraising for businesses that has become quite popular in recent years is a merchant cash advance. This option is for businesses that accept credit cards, such as retail stores or online businesses. A merchant cash advance is a quick and easy way to acquire necessary business funding in a short time with minimal paperwork.
Credit rating is not a factor in a merchant cash advance, so there’s no long waiting time for credit approval. All that is needed is a fair amount of credit and debit card transactions per month. The merchant processing company is essentially loaning money against future card transactions and deducting the payments out of the total credit and debit card receipts, either daily, weekly or monthly.
The best thing about merchant cash advances is the fact that, once the initial cash advance is paid wholly or in part, the merchant is eligible for renewals with increasing limits. This is a good cushion to fall back on at any time that the business needs more funds, especially if it’s for an emergency.
Another new and innovative way of fundraising for businesses is called crowdfunding. Most Internet savvy people have already heard all about this funding source, but in case you haven’t for some reason, here’s how crowdfunding’s most intriguing developments are categorized:
- Group-based approaches
- Localization, i.e. focused on people in specific neighborhoods and cities
- Investment crowdfunding
In 2012, the crowdfunding industry raised $2.7 billion and the projections for 2013 were $5.1 billion, almost double according to a Crowdfunding Industry Report. Two main crowdfunding types currently exist. The first is called donation-based funding, where investors donate their funds toward a collaborative goal and receive rewards, perks, or products. Secondly, there is a newer model that is called investment crowdfunding. In this model, people who are seeking fundraising for businesses sell an ownership stake to each investor in the form of debt or equity. Investors who choose this model then become shareholders or owners with financial return potential, as opposed to products or perks, as in the donation model.
There are a number of crowdfunding sites to choose from, and different niche markets will correspond with different sites. Here are a few of the top-rated ones:
In crowdfunding, one of the most important factors is a good story that potential investors are interested in hearing. Making them believe what you believe, as a business owner and entrepreneur, is the key to getting your business funded. It’s very important to convey the passion that you have for your particular business to the investors and make them interested in being involved. If you don’t feel that you can do this particular step justice, hire someone who can. It’ll be money well-spent.
Traditional Bank Funding
Traditional funding is also an option when fundraising for businesses, especially for business owners who have an excellent rapport with a bank. Here are a few things that business owners should be doing when going after this type of financial goal:
- Setting the business valuation appropriately
- Raising the correct amount of capital
- Having realistic projections
- Being realistic and forthcoming about the competition
- Being aware of the potential audience
Another method of fundraising for businesses is a private placement. This method is usually for larger amounts because it requires a private placement memorandum, which is generally prepared by an SEC-savvy attorney. Essentially, what a PPM does is describe the investment to potential investors, disclose the state of the company’s finances, and incorporate plausible deniability. In other words, the investor signs the PPM acknowledging that they understand that they could lose their money. So, although getting investors to join in a private placement could be a bit more difficult and time-consuming than other methods of fundraising for businesses, they can be quite effective and lucrative, albeit not quite as cost-effective or quick to fund. For anyone who already has interested investors, a PPM is an excellent funding vehicle.